Paying for Education

December 2018
Paying for education
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“An investment in knowledge pays the best interest”, according to Benjamin Franklin anyway. Most of us appreciate the importance of a good education for making the most of the opportunities life offers. But the availability of good quality education is variable and austerity measures have meant state school funding is under increasing pressure. For some families the solution to this will mean sending children to a private school, but the costs involved are considerable.

How much does private schooling cost?
The demand for private school places is on the rise – the 2018 Census by the Independent Schools Council revealed that pupil numbers are at their highest since records began – just under 530,000 in 2018, up from just under 485,000 in 2000. As demand for places has increased, so has the level of fees – up an average of 3.4% in 2018 on the previous year [1]:

Type

Boarding fee (per term)

Day school day fee
(per term)

Sixth Form

£11,821

£5,022

Senior

£11,001

£4,862

Junior

£8,243

£4,291

Average

£11,228

£4,618

Average cost per academic year (3 terms)

£33,684

£13,854

For a child being sent to a private secondary school the financial commitment over a five-year school career could be upwards of £91,000. If you decide upon privately funded education, you need to be confident they can not only maintain the current level of fees but also absorb any increase in fees year on year, and these have recently been higher than the UK inflation rate. Another consideration if there is more than one child – can you afford to pay such fees for all your children? Footing bills of this magnitude might seem like a daunting task – but there are some ways to make education funding more manageable.

Pay fees up front
For parents or grandparents with a capital sum available, and who know what school children will be attending you may be able to negotiate a discount in return for an upfront payment with the school bursar. For example, they might be willing to fix the current fee level for subsequent years if you are able to pay a year or more in advance as a lump sum. Paying up front provides peace of mind as well as the potential for saving money. However, not all schools will facilitate such fee negotiations, many people won’t have that kind of money available and even if they do many families won’t have access to sufficient lump sums to make this a viable option. Importantly when paying an upfront fee, care should be taken to check the credit status of the school. If it were to fail you could lose some or all of your investment. If you’re making a lump sum contribution to school fees on a one-off rather than a regular basis it’s worth noting that the annual ‘gift allowance’ for Inheritance Tax (IHT) purposes is £3,000 in 2018/19 tax year.

Regular gifts from income
If you’ve significant surplus income it could be used regularly towards school fees thus avoiding the possibility of it being frittered away on cars or holidays. Furthermore, regular gifts like this won’t count towards your £3,000 annual allowance for Inheritance Tax (IHT) purposes, nor would these gifts be Potentially Exempt Transfers (PETs). Making a regular contribution to school fees is also a good way to overcome one of the potential drawbacks of gifting cash to grandchildren - that we can’t always be sure they’ll make sensible choices when spending it.

ISAs
These are a great way to put money aside for the future in a tax-efficient way. The annual ISA allowance is £20,000 so for 2018/19, so making full use of this each year would make a substantial dent in the annual school fees bill – particularly if both parents are maximising their contributions. Saving in an ISA in your own name as a parent or grandparent means you retain control over the funds and will decide how and when they’re spent. If you did decide to gift some, or all, of the proceeds from an ISA to children at a later date, it’s worth remembering that it will stay in your estate for IHT purposes for a full 7 years. There’s more information for grandparents around helping children and grandchildren in Bank of Nan and Grandad.

Junior ISAs
Junior ISAs (JISAs) with a lower annual allowance of £4,260 can be particularly useful for those parents who’ve already maximised their own ISA allowances. Growth and interest in JISAs on parent’s contributions for a minor child (apart from the first £100) is treated as the child’s own income. Another benefit of JISAs in providing for school fees is that not only parents but other family members can contribute, but don’t forget that at the age of 16 children are automatically made aware of JISAs in their name and from 18 parents no longer have any say in how the money is used. So while you may have intended the pot to pay for tuition fees, they might decide to spend it on backpacking around Asia!

University funding and more
Student loans are structured quite differently to a typical personal loan. If you’ve children considering higher education and how to fund it, or if they’ve recently graduated you might want to take a look at our previous blog post – Should parents pay student fees?  While the provision of a top notch private education or a degree from a prestigious university will play their part in children’s success, we shouldn’t underestimate the importance of basic money management. Money lessons for kids offers some practical tips and explains how digital apps can help teach basic budgeting.

Heather Lewis
Marketing Assistant, LEBC

Please remember, no news or research item is a recommendation or advice to buy. LEBC Group Ltd is not responsible for accuracy and may not share the author’s views. If you are unsure of the suitability of any investment or product for your circumstances please contact an adviser. All investments can fall as well as rise in value so you could get back less than you invest. The Financial Conduct Authority does not regulate tax advice.

[1] ISC Census & Annual Report 2018

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